Our 501(c)(3) organization has a gentleman who is writing a book and would like to donate copies for us to give to folks who donate $100 or more. We were thinking that the prime time to start this would be during the annual Community Gives Day with our community foundation, when we usually get a bunch of new donors. Here’s the sticky part: the substantiation letter for the donation comes from the community foundation. There is no indication that donors will “receive” anything for their donation. May the donor claim the full gift as a deduction because this is a “low cost item” that doesn’t reduce their contribution, or do we have to put a value on the book so that they have to reduce their claim for a deduction?
This is an interesting and convoluted question, but I think the donors giving you cash contributions would have to deduct the value of the book from their claimed contribution.
Donors must generally reduce the amount of their charitable contribution deduction by the value of goods or services received in consideration for the gift. Treasury Regulations provide that an item is provided “in consideration for the gift” if, at the time the donor makes the gift, the donor “receives or expects to receive” goods or services in return for the gift. Therefore, if you give out the book for contributions over $100, even though the donor is not expecting it, the book is “in consideration for” the gift.
As an exception to the rule, the value of goods or services of “insubstantial value” does not have to be deducted from the contribution. Generally, insubstantial gifts are worth no more than 2% of the gift or $109, whichever is less, or are “low cost items” costing $10.90 or less in return for gifts of $54.50 or more. (These numbers are indexed annually for inflation.) (See Ready Reference Page: “Charities Must Set Value on ‘Quid Pro Quo’ Gifts”) The Rev. Proc. providing guidance on how charities should follow these rules (Rev. Proc. 90-12) says that the “low cost items” rule applies when the only “benefits received in connection with the payment are token items (bookmarks, calendars, key chains, mugs, posters, tee shirts, etc.) bearing the organization's name or logo.” A book, other perhaps than a short paperback history of your organization, would not seem to fit this description and would require a reduction in the contribution deduction claimed.
Even if the books were considered “low cost items,” the fact that the author gives them to you free would not mean that they are without “cost” for the purpose of these rules. The Rev. Proc. says the “cost to the organization” means the “reasonable amount the organization would have to pay for the items or services in question.” Presumably a real book would cost more than $10.90.
The final wrinkle is that the gifts on Community Giving Day are not made directly to you, but to the community foundation for your benefit. Since you are giving the book only for gifts that make their way to you, I think the quid pro quo rules would still apply. Gifts given to you directly would require your substantiation letter and a statement of the value of goods or services received in return.